How To Navigate The Property Condition Assessment Industry

Are all Property Condition Assessment (PCA) reports the same? How do you navigate the PCA consulting world to find the scope of services you are looking for?

November 28, 2016

How To Navigate The Property Condition Assessment Industry

By Kyle Christiansen, RA, AIA

Virtually every commercial facility or property will at some time go through a technical, building systems review process, often referred to as a Property Condition Assessment, or PCA. PCA reports are technical building systems reports that focus on commercial properties including retail, office, industrial, multifamily, hospitality, manufactured housing, health care, educational, military, government, and recreational properties.

PCAs for commercial properties gained popularity as a result of the Savings and Loan Crisis of 1978. Lenders, especially Fannie Mae, realized that there was no recognized standard for completing a comprehensive property assessment. At that time, no formalized criteria existed for performing such surveys, so ASTM International seized on the opportunity to create an engineering property assessment guide. The lending industry has subsequently made PCA reports a requirement demonstrating standard of care and meeting due diligence requirements for loan origination and processing. Fannie Mae, Freddie Mac, and HUD PCA guidelines build upon the ASTM E2018 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. Every 8 years, the ASTM Guide is updated and the most recent update occurred in 2015.

The ASTM PCA Guide is not intended to be the “gold” standard for the commercial property industry. The key word in the title — Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process — is “baseline.” The ASTM Standard is an entry-level standard of care that is required to meet the minimum expectation for PCAs. The ASTM guide recognizes that additional scopes of services may be prudent, based on the intention and needs of the entity who is engaging the service. Currently, there is no industry standard of care for more expansive and comprehensive PCAs.

The ASTM PCA Guide states the following about increasing levels of care in conducting property condition assessments: “This guide also recognizes that there are varying levels of property condition assessment and due diligence that can be exercised that are both more and less comprehensive than this guide, and that may be appropriate to meet the objectives of the user. Users should consider their requirements, the purpose that the PCA is to serve, and their risk tolerance level before selecting the consultant and the level of due diligence to be exercised by the consultant. The user should also review or establish the qualifications, or both, of the proposed field observer and PCR reviewer prior to engagement.”

Types Of Property Condition Assessment Reports

Are all PCA reports the same? How do you navigate the PCA consulting world to find the scope of services you are looking for? Below are some the generally accepted categories for PCAs:

Entry Level PCA:ASTM E2018-15 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process. This type of PCA report is intended for use by lenders for property refinancing. Most properties refinance approximately every 7 years. Baseline PCA reports meet the basic standards set by ASTM and are typically produced to follow a financial model approach to property assessments. Scientific protocol is quite limited in the scope outlined in the ASTM Guide.

No testing of systems

No invasive investigation

No educational requirements for the field assessor

No measurements

Entry level PCAs are primarily a financial tool to identify overall condition, fatal flaws, and cash flow over a specified period of time. These reports are typically done quickly to meet the schedule of the loan process and interest rate lock. These reports are rarely used by management or maintenance staff for day to day property maintenance. Due to the speed of completion, Baseline PCAs are typically light on assessment and take a limited approach in estimating costs. These PCAs are primarily financial tools used by lenders. A financial model is based upon extrapolation from a limited body of actual information and relies upon professional insight rather than extensive physical observation of condition. Report writers typically lean towards simple and abbreviated critiques of the properties. Little technical information is provided. The reports are intended for financial rather than maintenance purposes.

Equity Level PCA: Currently, there is no industry standard available. Standards are set by each consultant, based on an expanded scope of work. Equity level PCAs are typically written for the purpose of property acquisition. By its purpose and scope, equity work is more risky, more conservative, and more technical. Equity reports typically focus more time and effort on explaining condition and recommendations with technical insights. Recommendations focus on “Best Practices” and “Worst Case Scenario.” Time on-site and report writing may take a significant amount of extra time. At the discretion of the purchaser, a team of specialist can be requested. These specialists bring expertise to the assessment. Specialists will typically not test or conduct invasive investigation. They bring their experience to bear on a visual assessment. If complicated conditions exist, further investigation may be required. These equity reports are typically used as a negotiating tool for purchasers and may be used as a maintenance tool after the property is acquired. Additional specialists used for this type of report may include roofing specialists, veneer specialists, structural engineers, pavement specialists, MEP engineers, elevator consultants, and accessibility consultants.

Facilities Condition Assessments, FCA: FCA reports are currently the gold standard in the property condition assessment industry. Facilities planning, or capital planning, reports are primarily focused on maintenance and management These reports are designed to provide a comprehensive source of information regarding conditions to the management of the building in determining the best course of action for its operation and maintenance over a specified period of time, usually 20 years, where multiple expenditure scenarios may be modeled to provide viable operational plans. These reports will be used as primary tools for property maintenance and are intended to be accurate, well researched, and technically explicit. FCA reports should focus attention on scientific reporting and assessment methods in gathering data at the property. This attention to detail should include discussion of interview notes, historic documents concerning maintenance practices and costs, equipment manufacturer and ages, as well as a catalogued summary of equipment. FCA reports should contain building maintenance recommendations that are clearly articulated, technically explained, and financially accurate for regional and system related costs. Additional recommendations may be offered for energy savings, maintenance strategies, and facility expansion opportunities. Due to the expanded attention to detail and technical discussion, these reports are typically completed by very experienced and professional site assessors. Follow-up discussion between the assessor and the client is typically necessary to help the client understand the technical aspects of the report. Additionally, it is anticipated that the consulting firm will, in consultation with the client, prepare long term plans to determine the best course of action for prioritizing capital and maintenance funding for the property. FCA assessments can also be conducted in conjunction with property maintenance software providers. Software for facilities maintenance is offered by specialty software companies and can be purchased directly by property management which will generate long term operational and maintenance (O&M) plans, as well as, preventative maintenance scheduling for individual components. Consultants can assist in providing the data points for implementing this software or can assist in the purchase of maintenance software. Some facilities consultants have developed proprietary software that compliments their FCA reporting. Software programs for facility maintenance can be useful for tracking expenses, supplies, and historical information on each system. Finally, a FCA report should provide perspective on value added maintenance and capital expenditures such as payback periods for energy enhancements and for comparison of capital maintenance costs verses property value.

When choosing a Property Condition Report, understand that there are a variety of report types. Pick the reporting type, software, and the due-diligence company that best suits your budget and your needs.

Kyle Christiansen, RA, AIA is Vice President and Director of Engineering for AEI Consultants. Mr. Christiansen has been an industry leader in due-diligence for the last 25 years as Vice President of BEST, Building Evaluation Services and Technnology and Principal Architect for ECS, Engineering Consulting Services. He has served on ASTM committees for developing accessibility and property condition assessment guides. He lives and works in Frederick, MD and has made hundreds of assessments of commercial properties in 49 states and six countries.

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